Pensions: is auto-enrolment doomed to fail?

The cost of contributing is going to rise and people may struggle to afford it

The idea of workplace pension saving has finally sunk into the nation's collective psyche as a 'normal' thing to do but is one of the government's flagship pension reforms actually going to work?

Auto-enrolment has been lauded as a great success: more than four million people have been automatically enrolled in a workplace pension and many are saving for the first time, the opt-out rates have been lower than expected and a recent survey by the Department for Work and Pensions (DWP) shows 78% of workers think of workplace saving as a 'normal' thing to do.

Great. Let's all go home early – the pension crisis is over isn't it? Well, no it's not actually, it's far from over.

You see despite the great leaps and bounds made by auto-enrolment there is a huge hurdle it has yet to overcome: people are saving but they're not saving enough.

Another DWP survey shows just half of people are saving enough to maintain their current lifestyle in retirement.

Under auto-enrolment the collective contribution rate (that is the combined amount contributed each month by you, your employer and the tax relief from the government) will rise to 8% in 2018. You might think that's a fair whack of your wages, and when it happens you may feel the increase – particularly as wage growth has remained stagnant.

However, pensions experts have warned that 8% is far from adequate and contributions should be around 15% of wages, or even higher.

The problem with this is that while savings need to increase, as mentioned before, wage growth is nowhere to be seen. It's hard to ask employees to put more of their cash away for the future when they're struggling to pay the bill.

Equally, employers aren't going to be too keen to provide wage increases if they have to stump up more in pension contributions for their workers. It's a bit of a vicious cycle that inevitably leads to undersaving.

It will be interesting to see what happens in 2018 when contributions rise to 8% and individuals are forced to stump up more. My guess is that we'll see more people opting out, particularly if interest rates are hitting their mortgage repayments and household budgets are even more stretched.

Auto-enrolment is a fantastic initiative and while it may be 'normal' for people to save, will it still be affordable for them to carry on doing so?